2 appealing ASX shares I'd buy after the US rate cut

These stocks look like top buys to me.

| More on:
A happy young couple lie on a wooden deck using a skateboard for a pillow.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Lower interest rates in the United States could provide a useful boost to some ASX shares, helping them grow their operations and profit.

Companies with exposure to the US economy may get a lift if the recent US Federal Reserve interest rate cut of 50 basis points (0.50%) has a flow-on effect, although only a few ASX shares have sizeable operations in the US.

However, there are two very successful businesses that I think could grow in the US in the coming years.

Reece Ltd (ASX: REH)

Reece describes itself as a leading distributor of plumbing, waterworks, and HVAC-R (heating, ventilation, air conditioning and refrigeration) to commercial and residential customers through more than 900 branches in Australia, New Zealand and the US.

The ASX share has 243 branches in the US, with a presence in the "sun belt" states of Texas, California, Florida, Arizona, and Georgia. In recent times, Reece has been working on a network expansion and upgrading its branch network. A new distribution centre in the US will support the service proposition.

In FY24, Reece US saw revenue growth of 3% to US$3.45 billion, and earnings before interest and tax (EBIT) grew 8% to $178 million.

I believe that the US interest rate drop could spur an increase in construction and renovation demand, which may then help Reece. I think the challenging trading environment in the US could start shifting as rate cuts play out.

Xero Ltd (ASX: XRO)

As a cloud accounting software provider, Xero can benefit from the growth in the US economy, particularly if more people start smaller businesses and need accounting software.

Xero has a large number of subscribers in Australia, New Zealand, the United Kingdom, South Africa, Canada, and the US.

The US Chamber of Commerce published an article earlier this year and said:

Entrepreneurship is booming in the United States. Over the last few years, the number of applications filed to start new businesses has surged. Application numbers doubled in 2020 compared to recent years, and 2021 and 2022 saw over 5 million applications filed, according to the U.S. Census Bureau.

The trend only accelerated in 2023, with a record-breaking 5.5 million new business applications filed. That bodes well for the ASX share, in my opinion.

In FY24, Xero added 38,000 net subscribers in North America to reach 422,000 subscribers.

Xero can benefit not just from cuts in the US but also in other markets such as Canada, the UK and elsewhere.

The ASX share can also benefit from rising global subscribers, increasing average revenue per user (ARPU) (with subscription price increases) and growing operating leverage. FY24 saw free cash flow rise $240 million and net profit jumped $288 million.

While the Xero share price has gone up, I think the company's profit can rise significantly in the next few years as well.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Opinions

share buyers, investors, happy investors
Opinions

Why it could be a great time to buy AFIC shares

I’m optimistic about the return potential for this investment company.

Read more »

a couple clink champagne glasses on board a private aircraft with gourmet food plates set in front of them. They are wearing designer clothes and looking wealthy.
Opinions

Why I'm aiming for $1 million with ASX shares

I think it makes a lot of sense to invest in stocks to achieve wealth goals.

Read more »

Man ponders a receipt as he looks at his laptop.
Opinions

3 reasons why the Xero share price could be a strong buy

This stock has all the hallmarks of a long-term winner.

Read more »

Happy miner giving ok sign in front of a mine.
Opinions

Which ASX 200 stock offers 'material upside' amid continuing uncertainty over US tariffs?

Blackwattle Investment has identified one ASX 200 large-cap stock that is thriving on the uncertainty.

Read more »

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
Financial Shares

2 rising ASX financial shares with 'meaningful upside' still left: fundie

Financials outperformed every other sector in FY25, but there are still buying opportunities left, say these experts.

Read more »

A businessman hugs his computer and smiles.
Opinions

If I could only own one ASX 200 share for the rest of my life, it'd be this one

This is one stock I expect to own forever.

Read more »

Man ponders a receipt as he looks at his laptop.
Technology Shares

Brokers rerate 3 leading ASX 200 tech stocks

Experts reveal their ratings on the ASX 200 tech sector's three biggest companies.

Read more »

Person holding a blue chip.
Opinions

Buy alert! 2 ASX 200 blue-chip shares worth a look now: expert

Dylan Evans from Catapult Wealth has identified two blue-chip shares that he thinks are good buys today.

Read more »